Jaju’s Professional Academy

CA Foundation MTP
Business Law-Answer Sheet
Marks: 100 Time: 3 hours

Question no.1 is compulsory

Candidates are required to attempt any four questions from the remaining five questions.

Question 1
a)
Section – Section 171 of the Indian Contract Act, 1872
Provisions and Solution –
i. As per section 171 of the Indian Contract Act, 1872, bankers, factors wharfingers, attorneys of a High Court
and policy brokers may, in the absence of a contract to the contrary, retain, as a security for a general
balance of account any goods bailed to them
ii. However, no other persons have a right to retain, as a security for such balance, goods bailed to them,
unless there is an express contract to the effect.
iii. Section 171 empowers the banker with general right of lien in absence of a contract whereby it is entitled
to retain the goods belonging to another party, until all the dues are discharged.
iv. The banker under an agreement has a right of particular lien on the gold pledged with it against the first
secured loan of Rs. 50,000/-, which has already been fully repaid by Radheshyam.
Conclusion–
Accordingly, Bank‘s decision to continue the lien on the gold until the unsecured loan of Rs. 20,000/- (which is
the second loan) is not valid.

b)
According to Section 26 of the Negotiable Instruments Act, 1881 every person competent to contract
(according to the low to which he is subject to) has capacity to bind himself and he bound by making drawing,
accepting, endorsing delivering and negotiating an instrument. A party having such capacity may himself put
his signature or authorize some other person to do so.
A minor may draw, endorse, deliver and negotiate an instrument so as to bind all the parties except himself. A
minor way be a drawer where the instrument is drawn or endorsed by him. In that case he does not incur any
liability himself although other parties to the instrument can be made liable and the holder can reserve
payment from any other party thereto.
Therefore, in the instant case, the promissory note is valid and it is binding on Mr. Manoj. Malik but not an
Preet a minor.

c)
The laws in the Indian legal System could be broadly classified as follows:
Criminal Law
Criminal Law is concerned with laws pertaining to violations of the rule of law or public wrongs and
punishment of the same. Criminal Law is governed under the Indian Penal Code, 1860 and the Coide of
Criminal Procedure, 1973 (CrPC). Murder, rape, theft, fraud, cheating an assault are some examples of
criminal offences under the law.
Civil Law
Matters of disputes between individuals or organisations are dealt with under Civil Law. Civil Law primarily
focuses on dispute resolution rather than punishments. The act of process and the administration of civil law
are governed by the Code of Civil Procedure, 1908 (CPC). Some examples of civil offences are breach of
contract, non-delivery of goods, non-payment of dues, disputes between landlord and tenant.
Common Law
A judicial precedent or a case law is common law. A judgment delivered by the Supreme Court will be
binding upon the courts within territory of India under Article 141 of the Indian Constitution. The doctrine of
Stare Decisis is the principle supporting common law. ‘Stare Decisis’ means ‘to stand by that which is decided’
Principles of Natural Justice
Natural justice often known as Jus Natural deals with certain fundamental princples of justice going beyond
written law. A judgement can override or alter a common law, but it cannot override or change the statute.

d)
According to Section 7 of LLP Act, 2008 every LLP shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India. Further, explanation to the section provides,
the term ―resident in India‖ means a person who has stayed in India for a period of not less than one hundred
twenty days during the financial year. Hence, in the given problem, besides Mr. Ram and Mr. Raheem, Mr.
Albert should also be designated partners.

e)
Section – Section 17(2) of Sale of Goods Act, 1930.
Provisions and Solution –
a) Sale by Sample: As per Section 17(2) of the Sale of Goods Act, 1930, there are certain implied conditions.
One such condition is in a contract for sale is sale by sample. In a contract of sale by sample, there is an
implied condition that:
(i) that the bulk shall correspond with the sample in quality;
(ii) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
(iii) that the goods shall be free from any defect, rendering them unmerchantable, which would not be
apparent on reasonable examination of the sample.
(iv) In case of the above conditions are not fulfilled, the buyer has right to rescind the contract and claim
damages.
b) In the instant case, as Mrs. Geeta has casually examined the sample of rice without noticing the fact that
even though the sample was that of Basmati Rice but it contained a mix of long and short grains and the
bulk was same as sample shown so the buyer does not have any option available to him for grievance
redressal.
c) In case if Mrs. Geeta had specified her exact requirement as to length of rice, then there is an implied
condition that the goods shall correspond with the description. If it is not so, the seller will be held liable.

Question 2
a)
i. Depositing of ornaments in a Bank locker
 In this case bank is not getting complete possession of goods from the customer. Even after
depositing the ornaments, customer still has control on the same as he possesses the keys of the
locker. Since delivery of goods is not complete, this transaction cannot be treated as Bailment. Of
course, it is a valid contract as per the provisions of the Indian Contract Act. But the provisions of
Bailment will not apply to this case.

ii. No. The bailee cannot deliver the goods other than the goods bailed to him, even if such other goods
have a higher value.

b) Has the property in the goods passed in the following cases?

Section – Section 19 and Section 20 of Sale of Goods Act, 1930.
Provisions and Solution –
a. Where there is a contract for the sale of specific or ascertained goods the property in them is transferred
to the buyer at such time as the parties to the contract intend it to be transferred.
[Link] there is an unconditional contract for the sale of specific goods in a deliverable state, the property
in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of
payment of the price or the time of delivery of the goods, or both, is postponed.
c. Where there is a contract for the sale of specific goods and the seller is bound to do something to the
goods for the purpose of putting them into a deliverable state, the property does not pass until such thing
is done and the buyer has notice thereof.
[Link] goods are the goods which are not specifically identified or ascertained at the time of
making of the contract, the property shall pass on when the goods are ascertained in case of
unascertained goods.
As per the above provisions the solutions are as follows:
i. In this case, as the horse to be sold is specifically identified, it will be treated as specific goods in
deliverable state. Thus, the ownership of horse is already transferred when the contract is made.
ii. In this case, as the boat is not yet built, the property will not pass until the boat is built and the buyer has
notice thereof. So, the property of boat will be transferred to B when the boat will be in deliverable state
(built completely) and B has notice of the same.
iii. In this case as the goods are specific and in deliverable state, the property in sugar is transferred from A
to B when A puts ten quintals of sugar in sacks and inform the B about the same.
iv. In this case, one packet of salt is not yet ascertained as it is not specifically identified from one hundred
packets. So, the property in salt is not transferred.

c)
Section – Section 133 of the Indian Contract Act,1872
Provisions and Solution –
i. According to section 133 where there is any variance in the terms of contract between the principal debtor
and creditor without surety's consent, it would discharge the surety in respect of all transactions taking
place subsequent to such variance.
ii. Here, in the given situation, Megha cannot sue Prem, because a surety is discharged from liability when,
without his consent, the creditor makes any change in the terms of his contract with the principal debtor,
no matter whether the variation is beneficial to the surety or does not materially affect the position of the
surety.
Conclusion:
Megha cannot sue Prem, because a surety is discharged from liability due to the change in the terms of his
contract.

d)
As per Section 10 A of the Companies Act, 2013, a company incorporated after the commencement of the
Companies (Amendment) Second Ordinance, 2019 and having a share capital shall not commence any
business or exercise any borrowing powers unless:
i. A declaration is filed by a director within a period of 180 days of the date of incorporation of the
company in such form and verified in such manner as may be prescribed, with the Registrar that every
subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the
date of making of such declaration: and
ii. The company has filed with the Registrar a verification of it registered office as provided in subsection
(2) of section 12.
iii. Mr. Dinesh has to comply with the above requirements and procedure for commencing the business
of the company.

e)
Provisions and Solution –
i. According to section 200 of the Indian Contract Act, 1872, ―An act done by one person on behalf of
another without such other person‘s authority which if ratified, would result in damages to third
person or terminating any right or interest of a third person cannot be ratified.
ii. In other words when the interest of third party is affected the principle of ratification does not apply
Ratification cannot relate back to the date of contract if third party has it, the interveting time
acquired rights.
iii. In the instant case Mr. Navin has leased his car to Mrs. Susie. The lease agreement is terminable on
three months notice. Mr. Bhalla not being authorised by Mr. Navin demands on behalf of Mr. Navin,
gives a notice of termination of lease agreement to Mrs. Susie. Thus, the act is done beyond authority
and the cannot be ratified as it would terminate rights of Susie
Conclusion– The notice given by Mr. Bhalla cannot be ratified by Navin.

f)
Provisions and Solution –
i. According to Section 4 of the Indian Partnership Act, 1932, "Partnership" is the relation between
persons who have agreed to share the profits of a business carried on by all or any of them acting for
all. Therefore, for determining the existence of partnership, it must be proved.
a. There must be an agreement between all the persons concerned;
b. The agreement must be to carry on some business;
c. The agreement must be to share the profits of a business and
d. The business was carried on by all or any of them acting for all.
ii. On the basis of above provisons and facts, Mr. Ram and Mr. Raheem cannot be said under partnership
as they are teachers in a school and just purchased a flat jointly. By merely giving the flat on rent, they
are not doing business.
iii. They are just earning the income from the property under their co-ownership. Hence, there is no
partnership between them.
Conclusion – Mr. Ram is liable to pay his share only i.e. ₹1500. Mr. John has to claim rest ₹1500 from Mr.
Raheem.

Question 3
a)
Section – Section 37 of Indian Partnership Act, 1932.
Provisions and Solution –
a) Where any partner of a firm has died or retired from the firm, and the surviving or continuing partners
carry on the business of the firm with the property of the firm without any final settlement of accounts as
between them and the outgoing partner, then, in the absence of a contract to the contrary, the outgoing
partner or his estate is entitled at the option of himself or his representatives:
i) Share of the profits made since he ceased to be a partner as may be attributable to his share or
ii) Interest at the rate of six per cent per annum on the amount of his share of capital in the firm.
b) In the above case, A retires form the firm, B and C continue business of the firm without setting accounts.
So as per the provisions stated A‘s legal representative is entitled to profits made by use A‘s share of
property (20%) or interest at the rate 6% p.a. on the amount of A‘s share from the date of retirement till
the settlement of accounts.

b) Explain
Sometimes, the performance of a contract is quite possible when it is made. But subsequently, some event
happens beyond the control of parties which renders the performance impossible or unlawful. Such
impossibility is called as supervening impossibility. It is also called the post-contractual impossibility. This
doctrine does not apply – where the performance simply becomes difficult or becomes commercially
impossible or due to impossibility induced by the act or the conduct of any person etc.
Various situations as not constituting grounds of impossibility
i. The defendant agreed to supply specified quantity of ‗cotton‘ manufactured by a mill within a specified time
to plaintiff. The defendant could not supply the material as the mill failed to make any production at that time.
The defendant pleaded on the ground of impossibility which was not approved by the Court and held that
contact was not performed by defendant and he was responsible for the failure
ii. The defendant agreed to procure cotton goods manufactured by Victoria Mills to plaintiff as soon as they
were supplied to him by the mills. It was held by Supreme Court that the contract between defendant and
plaintiff was not frustrated because of failure on the part of Victoria Mills to supply goods (Ganga Saran vs
Finn Rama Charan)
iii. A dock strike would not necessarily relieve a labourer from his obligation of unloading the ship within
specified time.
iv. Commercial Impossibility means when something happens that makes performance of a contractual duty
excessively burdensome or extremely expensive. However it is not considered as Supervening Impossibility
and contract is required to be performed in such case.
For example if A agrees to sell to B bag of rice at Rs. 5,000 and if on the date of delivery, the price of rice goes
up to Rs. 5,500 per bag. A cannot refuse to deliver the bags to B. However if A fails to deliver, B can claim from
A Rs. 500 as damages arising directly from the breach

c)
As per Section 138 of Negotiable Instruments Act, 1881, Where any cheque drawn by a person on an account
maintained by him with a banker—
i. for payment of any amount of money to another person from that account.
ii. for the discharge, in whole or in part, of any debt or other liability.
is returned by the bank unpaid, either because of the—
i. amount of money standing to the credit of that account is insufficient to honor the cheque, or
ii. that it exceeds the amount arranged to be paid from that account by an agreement made with that
bank,
such person shall be deemed to have committed an offence and shall, be punished with imprisonment for a
term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or
with both.

Section 138 shall be not apply unless-

(a) Cheque presented within validity period: The cheque has been presented within a period of three
months from the date on which it is drawn or within the period of its validity, whichever is earlier.

(b) Demand for the payment through the notice: The payee or the holder in due course of the cheque,
makes a demand for the payment of the said amount of money by giving a notice, in writing, to the
drawer of the cheque, within 30 days of the receipt of information from the bank regarding the return of
the cheque as unpaid, and

(c) Failure of drawer to make payment: The drawer of cheque fails to make the payment to the payee
or, as the case may be, to the holder in due course, within fifteen days of the receipt of the said notice.

d)
A bought a tweed coat from B. After wearing the coat for sometime, A developed a termatitis (skin
trouble). It was discovered that the coat was fit for the use of a normal man. And A's skin trouble was
due to his oversensitive skin. The court held that the implied condition as to fitness for buyer's purpose
was not broken, as the coat was fit for the use of a normal man. In this case, it was A's duty to disclose
the fact of his oversensitivness to the seller at the time of sale.
e)
Section – Section 32 of Indian Partnership Act, 1932.
Provisions and Solution –
a) A partner may retire with the consent of all the other partners in accordance with an express agreement by
the partners; or by giving notice in writing to all the other partners of his intention to retire.
b) A retiring partner continues to be liable to third party for acts of the firm done after his retirement until
public notice of his retirement has been given either by himself or by any other partner. Further such
liability of partner is joint and several.
c) However, the retired partner will not be liable to any third party if the third-party deals with the firm
without knowing that the retiring partner was a partner in the firm. Thus dormant partners are not required
to give public notice of their retirement from the firm.
d) S retires from the firm without giving public notice. Later, the firm borrows Rs 5,000 and the banker is able
to recover only Rs 3,000 from the other partners. In such a situation, S continues to liable for acts of firm
done after retirement as he has not given public notice. In above cases it will result as under:
1st Case – As per above provisions stated S is assumed to be an active partner and has not given public
notice of his retirement. So, he shall be liable to the banker for Rs. 2000.
 2nd Case – As S is a dormant partner, S will not be liable to the banker.

Question 4:
a)

Section – Section 71 of Indian Contract Act, 1872.

Provisions and Solution –
a) For a valid contract, offer and its acceptance are compulsory. However, sometimes the law implies a
promise imposing obligation on one party and conferring rights to other as a valid contract even when
there is no offer, no acceptance. These are known as quasi contracts.
b) Quasi contracts are based on principles of equity, justice and good conscience. Quasi contract rests upon
the maxims, ―No man must grow rich out of another person‘s loss‖.
c) A person who finds goods belonging to another and takes them into his custody is subject to same
responsibility as if he were a bailee. Thus, a finder of lost goods has:
(i) to take proper care of the property as man of ordinary prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
d) In the given case X found a wallet and handed it over to the manager of the restaurant to keep till the true
owner is found. After a week he enquire about the wallet and the manager refused to return it back to X.
e) In the light of the above provisions, the finder of the goods is entitled to retain the goods found against
everybody except the true owner.
Conclusion- The manager must return the wallet to X, since X is entitled to retain the wallet found against
everybody except the true owner.

b)
Provisions and Solution -
i. According to Section 455 of the Companies Act, 2013, where a company is formed and registered
under this Act for a future project or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company may make an application to the
Registrar in such manner as may be prescribed for obtaining the status of a dormant company.
ii. In the instant case, XYZ Ltd. has made a significant accounting transaction (down payment of ₹1 crore
for plant and machinery), it does not meet the criteria of a dormant company under Section 455 of
the Companies Act, 2013.
Conclusion - XYZ Ltd. cannot acquire the status of dormant company.

c)
Provisions and Solution -
i. Under the Companies Act, 2013, a Government company is defined in Section 2(45) as a company
in which not less than 51% of the paid-up share capital is held by:
• The Central Government, or
• Any State Government or Governments, or
• Partly by the Central Government and partly by one or more State Governments,
and includes a company which is a subsidiary company of such a Government company.
 ii. In the instant case, total Government Shareholding is 40% [i.e. 20% (Government of India) + 10%
(Government of Tamil Nadu) + 10% (Government of Rajasthan)] = 40% The holding of the Life
Insurance Corporation of India i.e. 8% and ABC Limited i.e. 15%, total amounting to 23% cannot be
taken into account while counting the prescribed limit of 51%.
iii. Since the total shareholding held by the Central Government and State Governments combined is
40%, which is less than 51%,
Conclusion- XYZ Limited does not qualify to be a Government company under the provisions of the
Companies Act, 2013.

d)

i. By virtue of provisions of Section 64 of the Sale of Goods Act, 1930, in case of auction sale, the sale
is complete when the auctioneer announces its completion by the fall of the hammer or in some
other customary manner.
ii. In the instant case, Megha gives the highest bid in the auction for the sale of antic wall clock
arranged by Rachit. While announcing the completion of sale by fall of hammer on the table,
hammer brakes and damages the clock.
iii. On the basis of above provisions, it can be concluded that the sale by auction cannot be completed
until hammer comes in its normal position after falling on table.
Hence, in the given problem, sale is not completed. Megha will not be liable for loss and can avoid
the contract.
e)
―Inland instrument‖ and ―Foreign instrument‖ [Sections 11 & 12 of the Negotiable Instruments Act, 1881] A
promissory note, bill of exchange or cheque drawn or made in India and made payable in, or drawn upon
any person resident in India shall be deemed to be an inland instrument.
Any such instrument no so drawn, made or made payable shall be deemed to be foreign instrument.
Following are the answer as to the nature of the Instruments

i. In first case, Bill is drawn in Delhi by ram on a person (Shyam), a resident of Jaipur (though accepted to
be payable in Thailand after 90 days) is an Inland instrument.
ii. In second case, Ramesh draws a bill in Mumbai on Suresh resident of Australia and accepted to be
payable in Chennai after 30 days of sight, is an Inland instrument.
iii. In third case, Ajay draws a bill I California (which is situated outside India) and accepted to be payable
in India (Kanpur), drawn upon Vijay, a person resident in India (Jodhpur), therefore the Instrument is a
Foreign instrument.
iv. In fourth case, the said instrument is a Foreign instrument as the bill is drawn in India by Mukesh upon
Dinesh, the person resident outside India (China) and also payable outside India (China) after 45 days
of acceptance.

Question 5:
a)
An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has
arrived. When the promisor refuses altogether to perform his promise and signifies his unwillingness even
before the time for performance has arrived, it is called Anticipatory Breach.
Eg: Where A agrees to sell his white horse to B for Rs. 50,000/- on 10th of August, 2020, but he sells this horse
to C on 1st of August, 2020, the anticipatory breach has occurred by the conduct of the promisor
As per Contract Act, "When a party to a contract has refused to perform or disable himself from performing,
his promise in its entirety, the promisee may put an end to the contract, unless he has indicated, but words or
conduct, his interest in its continuance."
Effect of anticipatory breach: The promisee is excused from performance or from further performance.
Further he gets an option:
a. To either treat the contract as rescinded and sue the other party for damages from breach of contract
immediately without waiting until the due date of performance; or
b. He may elect not to rescind but to treat the contract as still operative, and wait for the time of performance
and then hold the other party responsible for the consequences of non-performance.
In this case, he will keep the contract alive for the benefit of himself and the other party, and if the guilty party,
decides to perform his part of the contract, he can continue to perform as the contract is still alive. He can also
take advantage of any supervening impossibility which may have the effect of discharging the contract.

b)
Provisions – Section 24 of the Indian Contract Act, 1872.
i. In an agreement, where some part of the object is legal and the other part is illegal, the question arises
about the validity and enforceability of such agreements.
ii. Where the legal and illegal part can be severed and divided, and separated, lawful part of object is
enforceable, and the unlawful part of the object is void.
iii. In the given case, A sells the house to B, is a valid transaction as the sale of house and consideration
paid for the same i.e., Rs. 10,00,000 is valid and enforceable. However, the agreement to pay Rs.
50,000 for gambling done in the house is illegal and thus void.
Conclusion: So, sale of house agreement is valid agreement and gambling agreement is illegal and not
enforceable by law.

c)
Partner means any person who becomes partner in LLP in accordance with LLP Agreement. Every LLP must
have minimum 2 designated partners. Designated Partner means any partner designated as per section 7 of
the LLP Act. Designated Partners are responsible for all legal compliances and penalties as per LLP Act.
According to section 7:
(i) Every LLP shall have at least two designated partners who are individuals and at least one of them shall be
a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or more partners are individuals and bodies
corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate
shall act as designated partners.
Resident in India: For the purposes of this section, the term "resident in India" means a person who has stayed
in India for a period of not less than 182 days during the immediately preceding one year.

d)
Section – Section 17 of Sale of Goods Act, 1930.
Provisions and Solution –
 i. In the case of a contract for sale by sample there is an implied condition that the bulk shall correspond with
the sample in quality and the buyer shall have a reasonable opportunity of comparing the bulk with the
sample.
ii. According to Section 15, where there is a contract for the sale of goods by description, there is an implied
condition that the goods shall correspond with the description. If the goods do not correspond with
implied condition, the buyer can avoid the contract and reject the goods purchased.
a. In the instant case, the sale of sweet is sale by sample and the quality of bulk does not correspond with
quality of sample. Hence, Prashant can return the sweet and avoid the contract.
In the other case, the sale of sweet is the case of sale by description and the quality of goods does not
correspond with description made by seller. Hence, answer will be same. Prashant can return the sweet and
avoid the contract.

e)
Section – Section 31 and 33 of Indian Partnership Act, 1932.
Provisions and Solution –
a) A partner can be expelled from a firm only if majority of the partners exercise the power of expulsion in
good faith.
b) The good faith requires following conditions to be satisfied:
i. The expulsion must be in the interest of the partnership;
ii. The partner to be expelled is served with a notice.; and
iii. He is given an opportunity of being heard.
c) If all these conditions are not satisfied, then the expulsion of a partner is not valid.
d) Further, no person shall be admitted as a partner into a firm without the consent of all the existing partners.
e) Due to willful neglect and misconduct of R the business suffered serious loss. After several warnings to R, P
and Q passed a resolution expelling R. Later by another resolution they admitted S as a partner in place of
R. R objects to this expulsion as also to the admission of Q. Here, R was expelled by giving reasonable
opportunity and the expulsion was in the best interest of the firm. So the expulsion is valid.
f) Further S was also admitted with the consent of all existing partners after expulsion. Thus R cannot stop
admission.
Conclusion- No, R doesn‘t have any right stop expulsion as well as admission.

Question 6:
a)
Holder in due course [Section 9 of the Negotiable Instruments Act, 1881]
Holder in due course means any person who for consideration becomes the possessor of a promissory note,
bill of exchange or cheque if payable in bearer or the payee or endorses thereof if payable to order, before the
amount in it became payable and without having sufficient cause to believe that any defect existed in the title
of the person from whom he derived his title.
In the instant case Ram draws a cheque for Rs. 1 lakh and hands it over to Shyam by way of gift. Here, Shyam‘s
title is good and bonafide. As a holder he is entitled to receive Rs. 1 lakh from the bank on whom the cheque
is drawn. However, Shyam is not a holder in due course as he does not get the cheque for value and
consideration.

b)
A lien is a right to retain possession of goods until the payment of the price. It is available to the unpaid
seller of the goods who is in possession of them where-
(i) the goods have been sold without any stipulation as to credit;
(ii) the goods have been sold on credit, but the term of credit has expired;
(iii) the buyer becomes insolvent.
The unpaid seller can exercise ‗his right of lien even if the property in goods has passed on to the buyer.
He can exercise his right even if he is in possession of the goods as agent or bailee for the buyer.
Termination of lien: An unpaid seller loss his right of lien thereon-
(i) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods;
(ii) When the buyer or his agent lawfully obtains possession of the goods;
Yes, he can exercise his right of lien even after he has obtained a decree for the price of goods from the
court.

c)
Provisions: As per section 5 of the Company Act, 2013
Explanation:
i. According to the "doctrine of indoor management" the outsiders, dealing with the company are
entitled to assume that as far as the internal compliance to procedures and regulations by the
company is concerned, everything has been done properly.
ii. They are bound to examine the registered documents of the company and ensure that the proposed
dealing is not inconsistent therewith, but they are not bound to do more.
iii. They are fully entitled to presume regularity and compliance by the company with the internal
procedures as required by the Memorandum and the Articles.
iv. In Ruben v. Great Fingall Consolidated, it was held that Doctrine of Indoor Management could not be
extended to cases of forgery. The transaction effected by forgery is void ab initio.
v. However, in Sri Krishan v. Mondal Bros. & Co. it was held that a company may be held liable for any
fraudulent Acts of its officers acting under ostensible authority.
Conclusion:
The company will not be allowed to deny liability in order to defeat bona fide claims of the creditor.

d)
Provisions and Solution –
As per Section 71 of the Indian Contract Act, 1872, A person who finds goods belonging to another and
takes them into his custody is subject to same responsibility as if he were a bailee.
Thus, a finder of lost goods has:
(i) to take proper care of the property as man of ordinary prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
The right of finder of lost goods- may sue for specific reward offered [Section 168]: The finder of
goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him
in finding the owner and preserving the goods found. But he has a right to retain the goods against the
owner until he receives such compensation.
 When finder of thing commonly on sale may sell it [Section 169]: When a thing which is commonly
the subject of sale if lost, if the owner cannot with reasonable diligence be found, or if he refuses, upon
demand, to pay the lawful charges of the finder, the finder may sell it—
(1) when the thing is in danger of perishing or of losing the greater part of its value, or
(2) when the lawful charges of the finder in respect of the thing found amount to two-thirds of its value.
Hence, the conclusions are:
(A) Gifting the wristwatch to his son Mahesh is unlawful. Raghav had no ownership rights over the watch
and could not legally transfer it to someone else.
(B) Warning Madhav to Sue for Recovery of Lawful Expenses: Raghav has no right to sue Madhav for the
expenses voluntarily incurred by Raghav in finding the owner.
(C) Retaining Possession of the Wristwatch Until Recovery of Lawful Expenses: Raghav‘s action of
retaining the wristwatch until Madhav reimburses him for lawful expenses is valid.
(D) Selling of Wristwatch for Recovery of Expenses: the watch is not perishable, and the expenses claimed
(₹20,000) are far below two-thirds of the value of the watch (₹1,00,000). Therefore, Raghav does not
have the right to sell the watch under these circumstances, and selling the watch would be unlawful.

e)
A agreed to sell and delivery to B 100 tins of coconut oil at the rate of Rs. 500 per tin. But A delivered 125
tins. And B rejected the entire quantity of coconut oil. Immediately thereafter. A delivered the 100 tins of
coconut oil of the contract quality. B again rejected the same on the ground that he had already cancelled
the contract by rejecting the tins. In this case. B is not justified in rejecting the tins. In this case B is not
justified in rejecting the tins, at the second time as the contract was not cancelled by B‘s earlier rejection of
the tins on the ground of excess quantity.

f)
A sold a stake of hay grown on his lant to B. B asked the permission of A to cut and remove a part of the
stake which was granted by A. Afterwards. B cut that part of the stake and took away the same. It was held
that this did not amount to the delivery of the whole stake of hay as the intention of the parties was to
separate the part from the residue.